SXG: emergence of a new gold producerSubject to the near...

SXG: emergence of a new gold producer

Subject to the near completion on TRY deal in acquiring the 600,000tpa carbon-in-leach gold processing plant and the Sandstone Gold project (150km north of Marda) with a JORC Resource of 14.5mt @ 1.5g/t Au for 720,000oz Au.

SXG will not only transition to a gold producer in 12-18 months, but will to a gold miner with a 1.3 oz Au portfolio (from the original 568,000oz Au resource).

It does not stop there, the deal is a value added transaction for both SXG, SXG shareholders, and TRY with a payment of $5m, 43.665m unlisted options exercisable at 10c per share, and a 2% royalty on gold production from the Sandstone tenements.

This is a win-win deal for both parties as for:

1.      TRY: retain nickel rights in the Sandstone project and gave a 2% net smelter royalty on future non-nickel production; has the ability to pay $4.4m for a 15% stake in SXG at 10c within the next 5 years; and received $5m for non-core assets that will not go to production and are on care maintenance.
2.      SXG: a bargain for $5m with a gold processing plant with a project consisting a JORC resource of 720,000oz Au; half the payback period to 12 months; increase the IRR to a whopping 80%; increase the NPV to $68m at a discount rate of 8% subject to gold prices at $A1,600 per oz; and bring down the CAPEX commitment to only $25m (making it more easier for SXG to ask the banks for $25m than say $51m at such current debt market conditions.

This deal is no brainer and enhances value to SXG greatly for a company with only a market cap of $20m, imo, there is no doubt, SXG is on the M&A cards of many gold miners nearby.

Firstly, we must not forget where the current gold prices are at the moment? On 1st Oct 2012 it touched $1,791 USD per oz, converting it back to AUD and basing it on current prices, the payback could well be below 10 months, NPV heading to $100m or over, and IRR possibly over 100%. With such magical numbers, I cannot see how much better is it for investors who are familiar with gold projects to jump on the SXG bandwagon than stay as a shareholder of such as the likes of RMS (with numerous disappointing operational issues and high costs).

Secondly if you refer to this broker report, you can read it at your leisure, but if you are illiterate and cannot read. All you need to look at is page 4 (the map) of this report to understand the big picture and what great opportunity SXG will represent after this deal.

http://www.scross.com.au/downloads/media/sxg_2012092121.pdf

If anyone knows, look at the neighbours:

1.      Edna May (EVN)
2.      Holleton (formerly IGO, now EVN, 70km south of Edna May: http://www.asx.com.au/asxpdf/20120625/pdf/4270hlw111qz0v.pdf)
3.      Marvel Loch (SBM, currently on care & maintenance)
4.      Bullabulling, a 3.5m oz Au deposit (BAB, 65km west of Coolgardie or under 150km east of Marvel Loch)
5.      Near Coolgardie you have RMS’s depleting Wattle Dam and FML’s Coolgardie operations http://www.focusminerals.com.au/our-projects/
6.      Between the Marda project and Mt Magnet, you have the 70,000oz Au Barlee gold project of BCN, which RMS was trying to buy for $4m plus production royalties (the transaction failed as it was rumoured that SXG somehow sabotaged the deal)
7.      And lastly you have Mt Magnet of RMS, which has problems with costs and somewhere north of Menzies is Leinster and Agnew, which Goldfields Limited is selling the Vivien gold deposit for $10m, consisting of only 154,000oz Au. http://www.asx.com.au/asxpdf/20120209/pdf/4247zg2znrw849.pdf

In essence, you can see, I wouldn’t be surprised that a currently undervalued SXG will be next on the dinner menu of hungry neighbouring wolves. But you must not forget the recent M&A deals recently:

1.      SBM merged with ALD
2.      Zijin took control of NGF with a 89.5% stake and looking for more targets using the NGF platform
3.      WGR is merging with MLX (we’ll know the result on 3/10/12, after 12pm WA time)
4.      MLX has taken a 5% stake in RDR (RDR’s gold project neighbours WGR’s project)
5.      SLR is merging with IGR
6.      B2Gold Corp is taking over CGX
7.      Shandong Gold is taking 51% stake of FML
8.      RRL is buying the McPhillamys Gold project for $150m off Newmont and ALK
9.      Zhongrun Gold is taking a 51.6% stake in NMG
10.  UML is merging with CRC

Don’t forget EVN, NST, and RMS are looking for meaningful acquisitions. An 1.3m oz gold miner like SXG is well placed as a target and a standalone gold miner (as it tranisitions from explorer to producer).

With PCF Capital looking at debt options for SXG to raise $25m, I am deeply confident this will happen, but the question remains “when?”, which SXG provided around Q3/Q4 of this year.

That’s why I can’t understand which fools were selling out of SXG on 2/10/12 which saw a low of 4.5c. Either way, I am confident to see SXG fly on debt funding being secured in the near term, so now is the best time to take a moderate risk to buy or top up SXG before a debt funding is secured.

Look at DRM for example, it secured a $55m debt funding from CBA on the 17/9/12:

http://www.asx.com.au/asxpdf/20120917/pdf/428rfntn46145y.pdf

 

Look at the prices (DRM low of 68.5c on 17/9, upon debt news, it rallied to as high as 86c, THAT’S a 25.5% increase in sp, subsequently DRM rallied to as high as $1.01 on 21/9/12, that’s a 47.4% increase to the low before the debt deal announcement):

http://www.tradingroom.com.au/apps/qt/quote.ac?section=pricehist&sy=tpl&code=DRM#tabs

So essentially, SXG only needs a $25m debt funding, rather than the $55m for a brand new plant like DRM and yes for those who are literate, you can simply read this broker report:

http://www.scross.com.au/downloads/media/sxg_2012092121.pdf

If TRY is willing to take unlisted options at a exercise price of 10c as payment, you can truly see that SXG will be a worth more than 10c for sure.